Is Foot Locker Stock A Buy?

Foot Locker, Inc. (NYSE:FL) is an American sports apparel retailer that can be found in and out of malls around the country. With comfort and athleisure in demand while people spend more time at home, the retailer leveraged its channels for continued revenues.

As the trend continues, is Foot Locker stock a Buy?

People are focused on function more than fashion, and Foot Locker is well positioned to take advantage. It also invested $100 million in Goat, an online shoe reseller marketplace, in 2019. This put it in a position to service both shoe markets.

Sneakers are more than a market – it’s a lifestyle for many of its biggest fans, called Sneakerheads. Some people will spend days or even years searching for that rare shoe. Foot Locker’s hedge on both in-mall retail and ecommerce gives it an omnichannel sales platform that reaches every end of the market.

Will Foot Locker be the perfect fit for investors or tie investors’ portfolios in a knot?

Foot Locker 101

As the name implies, Foot Locker rose to prominence as an athletic shoe company. It started a spin-off of F.W. Woolworth’s Kinney Shoe subsidiary. The first store opened in California, where it was originally based before moving headquarters to New York City.

By the 21st century, it was the highest performing division in the business, and everything was wrapped into the Foot Locker brand.

From there, it continued expanding with acquisitions of rival Footaction, skateboarding retailer CCS, and Goat. The company now operates in 27 countries around the world and primarily sells Nike products. In fact, Nike accounts for about 70 percent of Foot Locker’s sales.

This dynamic extends into Goat, where limited Nike runs are among the most expensive sneakers in existence. A pair of authentic Air Jordan 1s, for example, can cost you over $550,000. Yeezy’s are another big draw.

But these shoes are made by other brands, and that has some analysts wondering if Foot Locker stock is a good investment.

Is Foot Locker Stock A Buy?

Foot Locker, Inc. started 2021 with a market capitalization of around $5 billion and a P/E ratio in the ballpark of 14x.

It continued paying quarterly dividends to investors throughout the pandemic, making it a rare retailer to do so. Granted, the payments were slashed from $0.40 to $0.15, but continuing these payments shows the company’s dedication to its investors.

The current annual dividend of $0.60 per share represents a 1.37 percent dividend yield.

 

Foot Locker beat earnings estimates in the third quarter of 2020, bringing in $2.11 billion for the quarter. That’s also a nine-percent increase from the same quarter in 2019. This shows malls aren’t as dead as the media will have you believe.

Of course, there are risks to investing in this retailer.

Will Foot Locker Trip Up?

Foot Locker has over 3,000 stores across 27 countries, and it’s mostly located in malls. Analysts estimate more than half of mall-based stores will close, and the industry is struggling across the country. This isn’t anything new – malls have been dying in America for the past 20 years.

The company already closed 95 stores permanently over the past year. But surprisingly, the American shopping mall is coming back during the pandemic. Kids have nowhere else to hang out and need to get out of the house. In some towns, malls are the place to be now.

But that doesn’t necessarily translate to sales for Foot Locker. The store is heavily dependent on one vendor too – Nike. Should Nike run into financial trouble, it will make moves to shore up its own stores versus third-party vendors. But it certainly recognizes the importance of this partnership.

And 2019 is a really late play to finally get into the online secondary market. Ebay (EBAY) is one of the first successful web-based companies, and startups like Poshmark popped up over the years. More second-hand marketplaces will surely follow, creating a competitive landscape.

Foot Locker Has Rivals Catching Up

Although it beat out most rivals, there’s still intense competition in athleisure from titans of industry.

Foot Locker competes with its own vendor Nike, along with Lululemon (LULU), Dick’s Sporting Goods, and The Finish Line, among others. These are just the brick-and-mortar retailers – online is getting increasingly large.

Companies like Amazon and eBay have exposure in many of the same lanes. The company is racing to stay ahead, and it’s anybody’s game these days.

Technology is increasingly important, and both Nike and Lululemon have strong e-commerce. Should Nike find more success in its primary channels, it could close the door on Foot Locker.

Is Foot Locker Stock A Buy? The Bottom Line

Foot Locker is an American athleisure retailer and a large Nike retailer. The company is heavily invested in two marketplaces – malls and online. This put it in the right place at the right time to prove analysts wrong about the direction of retail.

The pandemic made athleisure fashion a trend. It also pushed American kids to malls, where they could socialize with friends away from parents at home. With so many restrictions in place in small town America, this trend could continue through 2021.

Of course, the economy will eventually recover. People will go back outside, and the laws will ease up on where people are allowed to go. It’s unclear if Foot Locker will continue its success shifting from a pandemic to recovery economy.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.